How ugly was the breakup between
Facebook Inc.
FB 2.48%
and the two founders of WhatsApp, its biggest acquisition? The creators of the popular messaging service are walking away leaving about $1.3 billion on the table.

The expensive exit caps a long-simmering dispute about how to wring more revenue out of WhatsApp, according to people familiar with the matter. Facebook has remained committed to its ad-based business model amid criticism, even as Facebook Chief Executive Mark Zuckerberg has had to defend the company before American and European lawmakers.

The WhatsApp duo of Jan Koum and Brian Acton had persistent disagreements in recent years with Mr. Zuckerberg and Chief Operating Officer Sheryl Sandberg, who grew impatient for a greater return on the company’s 2014 blockbuster $22 billion purchase of the messaging app, according to the people.

Many of the disputes with Facebook involved how to manage data privacy while also making money from WhatsApp’s large user base, including through the targeted ads that WhatsApp’s founders had long opposed. In the past couple of years especially, Mr. Zuckerberg and Ms. Sandberg pushed the WhatsApp founders to be more flexible on those issues and move faster on other plans to generate revenue, the people say.

Once, after Mr. Koum said he “didn’t have enough people” to implement a project, Mr. Zuckerberg dismissed him with, “I have all the people you need,” according to one person familiar with the conversation.

Facebook CEO Mark Zuckerberg testified about privacy issues and the use of user data before a Senate committee in April.
Photo:
Alex Brandon/Press Pool

WhatsApp was an incongruous fit within Facebook from the beginning. Messrs. Acton and Koum are true believers on privacy issues and have shown disdain for the potential commercial applications of the service.

Facebook, on the other hand, has built a sprawling, lucrative advertising business that shows ads to users based on data gathered about their activities. Mr. Zuckerberg and Ms. Sandberg have touted how an advertising-supported product makes it free for consumers and helps bridge the digital divide.

When Facebook bought WhatsApp, it never publicly addressed how the divergent philosophies would coexist. But Mr. Zuckerberg told stock analysts that he and Mr. Koum agreed that advertising wasn’t the right way to make money from messaging apps. Mr. Zuckerberg also said he promised the co-founders the autonomy to build their own products. The sale to Facebook made the app founders both multibillionaires.

*price at close of deal †approximately 615 AOL patents and patent applications

Source: Dealogic

The WhatsApp co-founders didn’t confront Mr. Zuckerberg at their departures about their disagreements over where to take the business, but had concluded they were fighting a losing battle and wanted to preserve their relationship with the Facebook executive, people familiar with the matter said. One person familiar with the relationships described the environment as “very passive-aggressive.”

Small cultural disagreements between the two staffs also popped up, involving issues such as noise around the office and the size of WhatsApp’s desks and bathrooms, that took on greater significance as the split between the parent company and its acquisition persisted.

Within Facebook, some executives were surprised to see Mr. Acton publicly bash the company since he didn’t seem to leave on bad terms, according to people familiar with the matter. When Mr. Acton later visited Facebook’s headquarters, David Marcus, an executive who ran Facebook’s other chat app, Messenger, confronted his former colleague. “That was low class,” Mr. Marcus said, according to people familiar with the matter. Mr. Acton shrugged it off. Mr. Marcus declined to comment.

Staff at Facebook headquarters in Menlo Park, Calif. Small cultural disagreements between Facebook and WhatsApp staffs, involving issues such as noise, size of desks and bathrooms, created friction.
Photo:
Kim Kulish/Corbis/Getty Images

The posts also prompted an angry call from Ms. Sandberg to Mr. Koum, who assured her that Mr. Acton didn’t mean any harm, according to a person familiar with the call.

When Mr. Acton departed Facebook, he forfeited about $900 million in potential stock awards, according to people familiar with the matter. Mr. Koum is expected to officially depart in mid-August, in which case he would leave behind more than two million unvested shares worth about $400 million at Facebook’s current stock price. Both men would have received all their remaining shares had they stayed until this November, when their contracts end.

The amount the two executives are leaving in unvested shares hasn’t been reported, nor have the full extent of the details around their disagreements with Facebook over the years.

“Jan has done an amazing job building WhatsApp. He has been a tireless advocate for privacy and encryption,” Mr. Zuckerberg said in May at the company’s developer conference about Mr. Koum’s departure. He added he was proud that Facebook helped WhatsApp launch end-to-end encryption a couple of years after the acquisition.

In many ways, Facebook and WhatsApp couldn’t have been more different. Facebook from its beginning in 2004 leveraged access to user information to sell targeted advertising that would be displayed as people browsed their news feeds. That business model has been hugely successful, driving Facebook’s market value past half a trillion dollars, with advertising accounting for 97% of the firm’s revenue.

A sign in WhatsApp’s offices at Facebook headquarters. Some Facebook employees mocked WhatsApp with chants of ‘Welcome to WhatsApp—Shut up!’

It is also the antithesis of what WhatsApp professed to stand for. Mr. Koum, a San Jose State University dropout, grew up in Soviet-era Ukraine, where the government could track communication, and talked frequently about his commitment to privacy.

Mr. Koum, 42, and Mr. Acton, 46, became friends while working as engineers at
Yahoo Inc.,
one of the first big tech companies to embrace digital advertising. The experience was jarring for both men, who came to regard display ads as garish, ruining the user experience and allowing advertisers to collect all kinds of data on unsuspecting individuals.

WhatsApp, which launched in 2009, was designed to be simple and secure. Messages were immediately deleted from its servers once sent. It charged some users 99 cents annually after one free year and carried no ads. In a 2012 blog post the co-founders wrote, “We wanted to make something that wasn’t just another ad clearinghouse” and called ads “insults to your intelligence.”